Wednesday, April 12, 2017

Preparing for Big Budgetary Changes


Time to throw my budget into the sea

I haven't posted here much recently - we've been in the "long valley" of savings, slowly chipping away at big long-term goals without many day-to-day changes. But, recently, something changed. My wife has been laid off from her job.

We are lucky in that, technically, we can live on my income alone. But given our current rate of saving and spending (and the fact that our health insurance came out of her paycheck), we'll be running a deficit of between $800 to $1200 a month.

There are a few different ways we could address the deficit.

Save Less For Retirement

I put aside $692.30 of each biweekly paycheck into retirement savings before I even see it. (How did I arrive at that number? It's $18,000, the IRS maximum for an individual's yearly 401(k) contributions, divided by 26, the number of yearly pay periods.) I could take care of our deficit automatically by reducing or eliminating these savings.

But there are a couple of problems with this.

Me saving less for retirement doesn't seem like a super great idea when we're already losing the retirement savings that came automatically out of my wife's paycheck. She was saving the same amount as me, so right off the bat, even if I don't touch mine, we're already saving 50% less than before as a couple.

Another problem is that retirement savings are tax-advantaged, and I see those tax advantages right in my paycheck. If I reduce my retirement savings by $1, I don't get $1 back in my pocket. I might get 75 cents or something. The rest goes right into my tax withholding. So cutting our savings might not help us as much as we think - at least, not as much as other cuts we could make.

Besides - recognizing that we have been immensely lucky to have the option of saving so much for retirement so far - it's really hard for me to stomach going down to $0, even temporarily.

Eat Into Savings

We have an emergency fund, the ostensible purpose of which is income replacement in case of unemployment. We could just run a deficit - at a rate of $1000 per month, it would take us over a year to run through our emergency fund. I imagine that my wife's unemployment will not last that long. If she makes the same or more than previously, we'll run a bit of surplus normally, which we can use to pay ourselves back.

I do like this better than saving less for retirement. There's no weird tax stuff, and, after all, it's what this money is for. But it seems a shame to eat up our emergency fund when we could, if we were temperate, basically cash-flow this. I mean, eating into the e-fund while spending at our normal rate is basically using the e-fund SPECIFICALLY to fund new shoes and crap. It feels wrong.

And what if we have a different kind of emergency, like medical expenses or something?

So, because I can't avoid it any further:

Spend Less

This is the obvious, frugal, wise choice. I currently budget $500 for each of us for "fun money" and I frequently go over. (Our individual "fun money" is meant to cover a variety of personal expenses, including clothes, lunches, personal care and grooming, entertainment, and hobbies.)

Simply eliminating our fun money could potentially allow us to totally cash flow this unemployment thing. But, I feel like we need to budget some kind of reasonable target, because it's hard for me to have no escape valve. I know I will spend anyway, so "nil" is basically "infinity." Does that make sense? I feel like without a reasonable cap, it's ALL illicit, so instead of planning and budgeting and prioritizing, I'll just buy first and feel bad later.

Looking at our budget, there are some places we could scale back that's not our personal fun money. Our grocery bill has gotten out of control. Part of that is due to where we live now - it's too far from grocery store to comfortably visit every couple of days, like we used to, so we end up needing a ton by the weekend, more than we can carry ourselves. So, we do Instacart from Whole Foods. But it's an expensive way to get groceries! Instacart has higher prices than in the store sometimes, plus service fees and a tip. And Whole Foods is not the cheapest store to begin with. Even if we stick to delivery services, Peapod is cheaper. We could also scale back on the things we buy, sticking to more staples and less junk and treats. The treats at Whole Foods are way more tempting than Stop & Shop, where we're more likely to stick to just what we need.

We've also been saving for travel, but it may be time to make the call that we're cancelling or postponing some of our planned vacations. Though not costless, another weekend in P-town is cheaper than a big cross-country trip.

Maybe we could cut some corners here and there by getting back to frugality and energy-efficiency in our electricity consumption, heating and cooling, and data usage.

But these are all pretty small potatoes compared to the plump fruit of our personal money. *sigh*

Some cuts will definitely have to be made. While I sincerely doubt our ability to scale our personal spending back to NIL, every little bit helps, in that every dollar we don't spend is a dollar we can keep in our emergency fund. We just need to scale back.

I have to admit that this is mostly my issue. My wife spends a lot less than me anyway and currently has quite a fun money surplus, so I'm not too worried about her.

When it comes to my personal fun expenses, I can do a few things to reduce my habitual spending. Mindful that I'm not going to change overnight, I can make some tweaks. Instead of having lunch out on a daily basis, I could bring my lunch three times a week. And I'm fine with cutting out my ebook buying for the time being - there's plenty at the library.

But most of my spending isn't actually habitual: it's things like clothes, shoes, and hobby gear, which always feel like "one time" purchases. Except there seem to be some of these "one time" purchases every single month!

In particular, I get the itch to spruce up my wardrobe each seasonal change. And right now, I am sick to death of winter and laser-focused on spring and summer. In the last month or so, I've gotten the urge to spend on cute summer dresses, ballet flats, trail runners, and hiking clothes designed for sun and insect protection (e.g. UV-blocking hat, permethrin-treated hoodie). Generally there's just enough of a whiff of professionalism or safety that I can make a case to myself for why I "need" these things. (It's going to be a bad tick year!!! I JUST KNOW IT)

I have to keep reminding myself that there's time to pace myself. I'll want hot-weather clothes just as much in May, June, July, and August. Even if I got everything I wanted now, I wouldn't be able to use half of it for some time yet.

My current strategy is to fall back on the old Buy With Intention List: instead of buying things now, I slot them into what future month I want to buy them in. It's a meditative activity, although probably an actual meditative activity would be better for me. Maybe I'll get into adult coloring books… I wonder how much those go for?

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